UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-23760
American Eagle Outfitters, Inc.
(Exact name of registrant as specified in its charter)
Delaware No.
No.13-2721761
(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer Identification No.)
150 Thorn Hill Drive, Warrendale, PA 15086-7528
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number, including area code:
(724) 776-4857Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Shares,
without par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [X] NO [ ]
The aggregate market value of voting stock held by non-affiliates of the registrant as of August 2, 2003 was $1,158,827,000.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 71,560,285 Common Shares were outstanding at March 15, 2004.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Proxy Statement for 2004 Annual Meeting of
Stockholders, in part, as indicated.
AMERICAN EAGLE OUTFITTERS, INC.
TABLE OF CONTENTS
PART I
Overview
American Eagle Outfitters, Inc., a Delaware corporation, is a leading lifestyle retailer that designs, markets and sells our own brand of relaxed, casual clothing for 15 to 25 year olds, providing high-quality merchandise at affordable prices. We opened our first American Eagle Outfitters store in the United States in 1977 and expanded the brand into Canada in 2001. We also distribute merchandise via our e-commerce business as well as through our catalog. Our collection offers modern basics like jeans, cargo pants, and graphic T's as well as a stylish assortment of cool accessories, outerwear and footwear under our American Eagle Outfitters® and AE® brand names.
We also operate the Bluenotes/Thriftys specialty apparel chain in Canada. The Bluenotes/Thriftys brand targets a slightly younger demographic, offering a more urban/suburban, denim-driven collection for 12 to 22 year olds.
As of January 31, 2004, we operated 805 American Eagle Outfitters stores in the United States and Canada and 110 Bluenotes/Thriftys stores in Canada.
As used in this report, all references to "we," "our," and "the Company" refer to American Eagle Outfitters, Inc. and its wholly-owned subsidiaries. The term "American Eagle" refers to our U.S. and Canadian American Eagle Outfitters stores and the Company's e-commerce business as well as our catalog. "Bluenotes" refers to the Bluenotes/Thriftys specialty apparel chain in Canada.
Information concerning the Company's business segments and certain geographic information is contained in Note 11 of the Consolidated Financial Statements included in this Form 10-K and is incorporated herein by reference.
Organization
On April 13, 1994, the Company successfully completed an initial public offering of its common stock. Our stock is traded on the Nasdaq National Market under the symbol "AEOS".
In November 2000, we acquired three businesses in Canada - the Bluenotes chain, an established Canadian brand; the Braemar chain, with excellent real estate in prime mall locations, of which 46 were converted to American Eagle stores during Fiscal 2001; and National Logistics Services ("NLS"), a 400,000 square foot distribution center near Toronto, which handles all of the distribution needs for our Canadian operations and provides services to third parties.
Our financial year is a 52/53 week year that ends on the Saturday nearest to January 31. As used herein, "Fiscal 2003", "Fiscal 2002" and "Fiscal 2001" refer to the fifty-two week periods ended January 31, 2004, February 1, 2003 and February 2, 2002, respectively. "Fiscal 2004" refers to the fifty-two week period ending January 29, 2005.
Store Growth
American Eagle
Our primary American Eagle store growth strategy is to continue our expansion throughout the United States by filling in existing markets. We currently operate in 49 states, the District of Columbia and Puerto Rico. We opened 43 net new U.S. stores during Fiscal 2003, increasing our U.S. store base by approximately 6%. Additionally, our U.S. gross square footage increased by over 10% during Fiscal 2003 due to the new store openings as well as incremental square footage from 65 U.S. store renovations.
During Fiscal 2003, we continued to grow rapidly in the western U.S. with 50% of our store openings in that region. We added nine new stores in California, a market with strong demographics for our target customer. We also entered two new markets, Hawaii, where we opened four stores, and San Juan, Puerto Rico, where we opened one store. Our performance is very strong in these new markets and we will continue to explore similar opportunities for new store growth.
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Our research has shown that there are still attractive retail locations where we can open American Eagle stores in both enclosed regional malls and urban and lifestyle centers, leaving us with several years of solid growth opportunity within the United States.
During Fiscal 2003, we opened nine American Eagle stores in Canada and remodeled one store location. We remain pleased with the results of our American Eagle expansion into Canada and look to a long-term potential of approximately 80 stores across the country. We also plan to enter the province of Quebec during Fiscal 2004 with at least four new store locations.
The table below shows certain information relating to our historical American Eagle store growth:
|
Fiscal |
Fiscal |
Fiscal |
Fiscal |
Fiscal |
||
| Stores at beginning of period | 753 | 678 | 554 | 466 | 386 | |
| Stores opened during the period (U.S. and Canada) | 59 | 79 | 127 | 90 | 80 | |
| Stores closed during the period | (7) | (4) | (3) | (2) | - | |
| Total stores at end of period | 805 | 753 | 678 | 554 | 466 | |
Bluenotes
The Company operated 110 Bluenotes stores throughout Canada at the end of Fiscal 2003, a decrease of one store from the prior year. Approximately 50% of Bluenotes stores are in the province of Ontario.
Remodel Opportunities
The Company continues to remodel older and smaller stores into its new store format, which better reflects the American Eagle brand image. In order to maintain a balanced presentation and to accommodate additional product categories, we selectively enlarge our stores during the remodeling process. In most cases we expand stores from an average of 4,000 gross square feet to an average of 6,000 gross square feet. We believe the larger format can better accommodate our new merchandise categories and support future growth. In many cases, we also upgrade the store location within the mall. We remodeled 65 U.S. stores during Fiscal 2003 to the new store design. As of January 31, 2004, approximately two-thirds of all American Eagle stores in the U.S. are in our new store format.
Store Locations
Our American Eagle stores average approximately 5,300 gross square feet and approximately 4,300 on a selling square foot basis. At January 31, 2004, we operated 805 American Eagle stores in the United States and Canada as shown below:
United States, including the Commonwealth of Puerto Rico
| Alabama | 15 | Indiana | 17 | Nebraska | 5 | Rhode Island | 3 | ||||
| Arizona | 10 | Iowa | 13 | Nevada | 3 | South Caolina | 11 | ||||
| Arkansas | 4 | Kansas | 7 | New Hampshire | 5 | South Dakota | 2 | ||||
| California | 55 | Kentucky | 12 | New Jersey | 18 | Tennessee | 20 | ||||
| Colorado | 12 | Louisiana | 13 | New Mexico | 4 | Texas | 55 | ||||
| Connecticut | 10 | Maine | 2 | New York | 36 | Utah | 10 | ||||
| Deleware | 3 | Maryland | 17 | North Carolina | 21 | Vermont | 3 | ||||
| District of Columbia | 1 | Massachusetts | 23 | North Dakokta | 4 | Virginia | 26 | ||||
| Florida | 41 | Michigan | 30 | Ohio | 36 | Washington | 16 | ||||
| Georgia | 23 | Minnesota | 15 | Oklahoma | 10 | West Virginia | 7 | ||||
| Hawaii | 4 | Mississippi | 6 | Oregon | 7 | Wisconsin | 13 | ||||
| Idaho | 3 | Missouri | 15 | Pennsylvania | 46 | Wyoming | 1 | ||||
| Illinois | 24 | Montana | 2 | Puerto Rico | 1 |
3
Canada
| Alberta | 7 | Manitoba | 2 | Newfoundland | 2 | Ontario | 37 | ||||
| British Columbia | 10 | New Brunswick | 3 | Nova Scotia | 2 | Saskatchewan | 2 |
Our Bluenotes stores average approximately 3,200 gross square feet and approximately 2,500 on a selling square foot basis. As of January 31, 2004, we operated 110 Bluenotes stores in eight Canadian provinces as shown below:
| Alberta | 15 | Manitoba | 4 | Newfoundland | 3 | Ontario | 51 | ||||
| British Columbia | 17 | New Brunswick | 4 | Nova Scotia | 9 | Saskatchewan | 7 |
Purchasing
The Company purchases merchandise from suppliers who either manufacture their own merchandise or supply merchandise manufactured by others, or both. During Fiscal 2003, both American Eagle and Bluenotes purchased a majority of their merchandise from non-North American suppliers.
All of our American Eagle suppliers receive a vendor compliance manual that describes our quality standards and shipping instructions. We maintain a quality control department at our distribution center to inspect incoming merchandise shipments for uniformity of sizes and colors, and for overall quality of manufacturing. Periodic quality inspections are also made by our employees at manufacturing facilities in the United States and internationally to identify potential problems prior to shipment of merchandise. Additionally, our merchant group works directly with many factories to address quality control issues before merchandise is shipped.
Global Labor Compliance
The Company is firmly committed to the goal of using only the most highly regarded and efficient suppliers throughout the world. We require our suppliers to provide a workplace environment that not only meets basic human rights standards, but also one that complies with all local legal requirements and encourages opportunity for all, with dignity and respect.
For many years, we have had a policy for the inspection of factories throughout the world where goods are produced to our order. This inspection process is important for quality control purposes, as well as customs compliance and human rights standards. During Fiscal 2001, we strengthened and formalized the process by developing and implementing a comprehensive vendor compliance program with the assistance of an internationally recognized consulting firm. This program contractually requires all suppliers to meet our global workplace standards, including human rights standards, as set forth in our Code of Conduct. The Code of Conduct is required to be posted in all factories in the local language. The program utilizes third party inspectors to audit compliance by vendor factories with our workplace standards and Code of Conduct.
Merchandise Inventory, Replenishment and Distribution
Purchase orders, executed by our American Eagle buyers for the U.S. stores, are entered into the merchandise system at the time of order. Merchandise is normally shipped directly from vendors, split after clearing customs, and routed to our two distribution centers, one in Warrendale, PA and the other in Ottawa, KS. Upon receipt, merchandise is entered into the merchandise system, then processed and prepared for shipment to the stores or forwarded to a warehouse holding area to be used as store replenishment goods. The allocation of merchandise among stores varies based upon a number of factors, including geographic location, customer demographics and store size. These factors impact anticipated sales volume and the quantity and mix of merchandise allocated to stores. Merchandise is shipped to the stores two to five times per week depending upon the season and store requirements. Ae.com, the Company's e-commerce business, uses a third-party vendor for its fulfillment services.
American Eagle stores in Canada and Bluenotes stores receive merchandise from NLS, our Canadian distribution network which consists of a 400,000 square foot central distribution center near Toronto, and four smaller sub-centers across Canada totaling approximately 65,000 square feet. Merchandise is shipped to the stores two to five times per week depending upon the season and store requirements.
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To support new store growth, over the past several years, we have improved our primary distribution facilities by installing a new warehouse management system, which makes the distribution process more efficient and productive. Additionally, to support our geographical expansion into the Northwest and Southwest, we purchased and expanded an existing distribution center in Ottawa, Kansas, which was opened in June 2001. This facility comprises approximately 400,000 square feet and will support our continuing store growth in the western U.S. This second facility increases our potential capacity to roughly 1,100 stores and gives the Company one or two day shipping times to approximately 85% of our stores. We also operate a facility near Puebla, Mexico, which supports our knit and denim production with warehousing, deconsolidation, product development and testing, quality control, and other value added services.
Customer Credit and Returns
We offer our U.S. customers an American Eagle private label credit card, issued by a third-party bank. We have no liability to the card issuer for bad debt expense, provided that purchases are made in accordance with the issuing banks' procedures. We believe that providing in-store credit through use of our proprietary credit card promotes incremental sales and encourages customer loyalty. Our credit card holders receive special promotional offers and advance notice of all in-store sales events. The names and addresses of these preferred customers are added to our customer database, which is used primarily for direct mail purposes. American Eagle customers in the U.S. and Canada may also pay for their purchases with American Express®, Discover®, MasterCard®, Visa®, bank debit cards, cash or check. Bluenotes customers may pay for their purchases with American Express®, MasterCard®, Visa®, bank debit cards or cash.
Additionally, gift cards can be purchased in our American Eagle stores in the U.S. and Canada and our Bluenotes stores. When the recipient uses the gift card, the value of the purchase is electronically deducted from the card and any remaining value can be used for future purchases. If a gift card remains inactive for greater than twenty-four months, the Company assesses the recipient a one dollar per month service fee, where allowed by law, which is automatically deducted from the remaining value of the card. This service fee is recorded within selling, general and administrative expenses on the Company's Consolidated Statements of Operations.
We offer our customers a hassle-free return policy. The Company believes that certain of its competitors offer similar credit card and service policies.
Competition
The retail apparel industry is very competitive. We compete primarily on the basis of quality, fashion, service, selection and price. American Eagle stores in the U.S. compete with various divisions of The Limited, The Gap, Abercrombie & Fitch and Pacific Sunwear as well as with retail chains such as Aeropostale, The Buckle and other national, regional and local retailers catering to a youthful customer. We also compete with the casual apparel and footwear departments of department stores and discount retailers.
American Eagle and Bluenotes stores in Canada compete with a variety of national specialty retail chains, a number of independent retailers and casual clothing shops within department stores, as well as various divisions of The Gap.
Trademarks and Service Marks
We have registered American Eagle Outfitters® in the U.S. Patent and Trademark Office ("PTO") as a trademark for clothing and for a variety of non-clothing products, including jewelry, perfume, and personal care products, and as a service mark for retail clothing stores and credit card services. We have also registered AE® for clothing and footwear products and an application is pending to register AE® for a variety of non-clothing items. We have also registered a number of other marks used in our business.
We have registered American Eagle Outfitters®, Thriftys®, and Bluenotes® in the Canadian Trademark Offices for a wide variety of clothing products, as well as for retail clothing store services. In addition, we are exclusively licensed in Canada to use AE® and AEO® in connection with the sale of a wide range of clothing products.
5
Employees
As of January 31, 2004, we had approximately 13,900 employees in the United States, of whom 2,800 were full-time salaried employees, 900 were full-time hourly employees and 10,200 were part-time and seasonal hourly employees. In Canada, as part of our American Eagle, Bluenotes and NLS operations, we had 3,500 employees, of whom 600 were full-time salaried employees, 400 were full-time hourly employees, and 2,500 were part-time and seasonal hourly employees. We consider our relationship with our employees to be satisfactory.
Available Information
The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available, free of charge, under the "Investment Information" section of our website at www.ae.com. These reports are available as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission.
Additionally, the Company's corporate governance materials, including our corporate governance guidelines; the charters of our audit, compensation, and nominating and corporate governance committees; and our code of ethics may also be found under the "Investment Information" section of our website at www.ae.com. A copy of the corporate governance materials are also available upon written request.
We rent our headquarters and distribution facility near Pittsburgh, PA from Linmar Realty Company, an affiliate of the Company and of Schottenstein Stores Corporation (see Note 3 of the Consolidated Financial Statements for a detailed description of the Company's relationship with Linmar Realty Company). Our headquarters and distribution center occupy approximately 490,000 square feet, 120,000 square feet of which is used for executive, administrative and buying offices. This lease expires on December 31, 2020. We also lease additional office and storage space near our headquarters totaling 38,000 square feet. These leases expire in March 2005 and August 2009, respectively.
The Company rents office space at 401 Fifth Avenue in New York for our designers, sourcing, and production team. This lease, for approximately 48,000 square feet, expires in May 2016. The previous office space, of approximately 18,000 square feet, at 485 Fifth Avenue in New York, NY is currently under a sublease. The lease and sublease expire in December 2008.
Bluenotes rents its headquarters, consisting of approximately 40,000 square feet, in Toronto, Ontario. The lease expires in February 2007.
We purchased an existing 290,000 square foot distribution facility in Ottawa, Kansas that opened in June 2001. This facility was expanded to approximately 400,000 square feet during Fiscal 2001. Through our Canadian acquisition, we purchased NLS, a 400,000 square foot distribution facility near Toronto, which is also used for the American Eagle Canada administrative offices. Additionally, we rent four smaller distribution sub-centers across Canada as part of NLS with a total of approximately 65,000 square feet. These sub-center leases expire with various terms through 2009. A warehousing and deconsolidation facility and office near Puebla, Mexico of approximately 94,300 square feet is also leased until 2005.
All of our stores in the United States and Canada are leased. The store leases generally have initial terms of 10 years. Some leases also include early termination options which can be exercised under specific conditions. Most of these leases provide for base rent and require the payment of a percentage of sales as additional rent when sales reach specified levels. Under our store leases, we are typically responsible for maintenance and common area charges, real estate taxes and certain other expenses. We have generally been successful in negotiating renewals as leases near expiration.
6
We are subject to various claims and legal actions that arise in the ordinary course of our business. We believe that such claims and legal actions, individually and in the aggregate, will not have a material adverse effect on our business or our financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our stock is traded on the Nasdaq National Market under the symbol "AEOS". The following table sets forth the range of high and low sales prices of the common stock as reported on the Nasdaq National Market during the periods indicated. As of March 1, 2004, there were 795 stockholders of record. However, when including associates who own shares through the Company's 401(k) retirement plan and employee stock purchase plan, and others holding shares in broker accounts under street name, the Company estimates the shareholder base at approximately 20,000.
| For the Quarters Ended |
Market Price |
|
|
High |
Low |
|
|
January 2004 |
$18.81 |
$14.88 |
|
October 2003 |
$22.16 |
$14.80 |
|
July 2003 |
$22.42 |
$14.59 |
|
April 2003 |
$17.46 |
$13.51 |
|
January 2003 |
$20.17 |
$12.87 |
|
October 2002 |
$17.03 |
$10.29 |
|
July 2002 |
$25.83 |
$15.17 |
|
April 2002 |
$29.00 |
$21.69 |
We have never declared or paid cash dividends and presently all of our earnings are being retained for the development of our business and the share repurchase program (see Note 2 of the Consolidated Financial Statements). We assess our dividend policy from time to time. The payment of any future dividends will be at the discretion of our Board of Directors and will be based on future earnings, financial condition, capital requirements, changes in U.S. taxation and other relevant factors.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following Selected Consolidated Financial Data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," included under Item 7 below and the Consolidated Financial Statements and notes thereto, included in Item 8 below. Most of the selected data presented below is derived from the Company's Consolidated Financial Statements which are filed in response to Item 8 below. The selected consolidated income statement data for the years ended February 3, 2001 and January 29, 2000 and the selected consolidated balance sheet data as of February 2, 2002, February 3, 2001 and January 29, 2000 are derived from audited consolidated financial statements not included herein.
7
(In thousands, except per share amounts, ratios and other financial information)
|
For the Years Ended (1) |
|||||
|
January 31, |
February 1, |
February 2, |
February 3, |
January 29, |
|
| Summary of Operations | |||||
| Net sales | $1,519,968 | $1,463,141 | $1,371,899 | $1,093,477 | $832,104 |
| American Eagle comparable store
sales (decrease) increase (3) |
(6.6)% |
(4.3)% |
2.3% |
5.8% |
20.9% |
| Consolidated comparable store
sales decrease (4) |
(6.7)% |
(5.7)% |
- |
- |
- |
| Gross profit | $554,252 | $542,498 | $547,368 | $436,225 | $356,508 |
| Gross profit as a percentage of net sales | 36.5% | 37.1% | 39.9% | 39.9% | 42.8% |
| Operating income (5) | $104,564 | $141,085 | $166,473 | $146,551 | $149,514 |
| Operating income as a percentage of net sales | 6.9% | 9.6% | 12.1% | 13.4% | 18.0% |
| Net income (5) | $60,000 | $88,735 | $105,495 | $93,758 | $90,660 |
| Net income as a percentage of net sales | 3.9% | 6.0% | 7.7% | 8.6% | 10.9% |
| Per Share Results | |||||
| Basic income per common share (5) | $0.84 | $1.24 | $1.47 | $1.35 | $1.30 |
| Diluted income per common share (5) | $0.83 | $1.22 | $1.43 | $1.30 | $1.24 |
| Weighted average common shares outstanding - basic |
71,113 |
71,709 |
71,529 |
69,652 |
69,555 |
| Weighted average common shares outstanding - diluted |
72,207 |
72,783 |
73,797 |
72,132 |
73,113 |
| Balance Sheet Information | |||||
| Total assets | $865,071 | $741,339 | $673,895 | $543,046 | $354,628 |
| Total cash and short-term investments | $337,812 | $241,573 | $225,483 | $161,373 | $168,492 |
| Working capital | $336,588 | $285,140 | $225,593 | $169,514 | $174,137 |
| Stockholders' equity | $643,670 | $577,482 | $502,052 | $367,695 | $264,501 |
| Long-term debt | $13,874 | $16,356 | $19,361 | $24,889 | - |
| Current ratio | 2.78 | 3.01 | 2.49 | 2.14 | 2.97 |
| Average return on stockholders' equity | 9.8% | 16.4% | 24.3% | 29.7% | 43.6% |
| Other Financial Information | |||||
| Total stores at year-end - American Eagle | 805 | 753 | 678 | 554 | 466 |
| Total stores at year-end - Bluenotes | 110 | 111 | 112 | 109 | - |
| Capital expenditures (000's) | $64,173 | $61,407 | $119,347 | $87,825 | $45,556 |
| Net sales per average selling square foot (6) | $427 | $460 | $514 | $549 | $569 |
| Total selling square feet at end of period | 3,739,988 | 3,383,912 | 2,981,020 | 2,354,245 | 1,625,731 |
| Net sales per average gross square foot (6) | $347 | $372 | $415 | $441 | $451 |
| Total gross square feet at end of period | 4,591,229 | 4,170,712 | 3,688,163 | 2,919,556 | 2,039,380 |
| Number of employees at end of period | 17,400 | 15,720 | 15,280 | 12,920 | 8,900 |
See footnotes on page 9.
8
(1) Except for the fiscal year ended February 3, 2001,
which includes 53 weeks, all fiscal years presented include 52 weeks.
(2) Includes the results of operations, beginning October 29, 2000, for the
three businesses in Canada that were acquired during Fiscal 2000.
(3) The American Eagle comparable store sales increase for the period ended
February 3, 2001 was compared to the corresponding 53-week period in the prior year.
(4) Consolidated comparable stores sales include American Eagle and Bluenotes
stores.
(5) For the fiscal year ended January 31, 2004, amounts include non-cash
goodwill impairment charges of $14.1 million attributed to Bluenotes goodwill.
(6) Net sales per average square foot is calculated using retail sales for the
year divided by the straight average of the beginning and ending square footage for the year.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and results of operations are based upon the Company's Consolidated Financial Statements and should be read in conjunction with those statements and notes thereto.
Critical Accounting Policies
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates and assumptions that may affect the reported financial condition and results of operations should actual results differ. The Company bases its estimates and assumptions on the best available information and believes them to be reasonable for the circumstances. The Company believes that of its significant accounting policies, the following involve a higher degree of judgment and complexity. See also Note 2 of the Consolidated Financial Statements.
Revenue Recognition. The Company records revenue for store sales upon the purchase of merchandise by customers. The Company's e-commerce and catalog business records revenue at the time the goods are shipped. Revenue is not recorded on the purchase of gift cards. A current liability is recorded upon purchase and revenue is recognized when the gift card is redeemed for merchandise. Revenue is recorded net of sales returns.
Revenue is not recorded on the sell-off of end-of-season, overstock and irregular merchandise to off-price retailers. These sell-offs are typically sold below cost and the proceeds are reflected in cost of sales. See Note 3 of the Consolidated Financial Statements for further discussion.
Inventory. Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses.
The Company reviews its inventory levels in order to identify slow-moving merchandise and generally uses markdowns to clear merchandise. If inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price, additional markdowns may be necessary. These markdowns have an adverse impact on earnings, which may or may not be material, depending on the extent and amount of inventory affected. The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve can be affected by changes in merchandise mix and changes in actual shrinkage trends.
Asset Impairment. The Company is required to test for asset impairment whenever events or changes in circumstances indicate that the carrying value of an asset might not be recoverable. The Company applies SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in order to determine whether or not an asset is impaired. Management evaluates the ongoing value of assets associated with retail stores that have been open longer than one year. Assets are evaluated for impairment when undiscounted future cash flows are projected to be less than the carrying value of those assets. When events such as these occur, the assets are adjusted to estimated fair value and an impairment loss is recorded in selling, general and administrative expenses. Should actual results or market conditions differ from those anticipated, additional losses may be recorded.
Goodwill. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, management evaluates goodwill for impairment by comparing the fair value of the Company's reporting units to the book value. The fair value of the Company's reporting units is estimated using a discounted cash flow model. Based on the analysis, if the implied fair value of each reporting unit exceeds the book value of the goodwill, no impairment loss is recognized.
During the three months ended November 1, 2003, the Company believed that certain indicators of impairment were present related to the Bluenotes goodwill. As a result, the Company performed an interim test of impairment in accordance with SFAS No. 142. The Company completed step one and determined that impairment was likely, which also required the completion of step two. Due to the significant assumptions required for this test, the Company retained an independent third party to perform a step two analysis and to validate Management's assumptions used in step one. Although the third party valuation was still pending as of November 1, 2003,
10
Management believed that a loss was probable and determined its best estimate at that time in accordance with the provisions of SFAS No. 142, as supplemented by SFAS No. 5, Accounting for Contingencies. As a result, the Company recorded an $8.0 million estimated impairment loss during the three months ended November 1, 2003.
During the fourth quarter of Fiscal 2003, the independent third party valuation of the Bluenotes reporting unit was completed. Based upon the step one analysis, it was concluded that the fair market value of the Bluenotes reporting unit was below the book value of the business. The Company completed the step two analysis and allocated the fair value, as determined by the valuation firm, to the existing assets and liabilities and determined that the remaining carrying value of the goodwill was impaired. As a result, the Company recorded an additional $6.1 million loss during the fourth quarter of Fiscal 2003. As of January 31, 2004, the book value related to the Bluenotes goodwill was zero. See Note 9 of the Consolidated Financial Statements for further discussion.
Income Taxes. The Company calculates income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the tax rates in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized.
Legal Proceedings and Claims. The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with SFAS No. 5, Accounting for Contingencies, Management records a reserve for estimated losses when the amount is probable and can be reasonably estimated. If a range of possible loss exists, the Company records the accrual at the low end of the range, in accordance with FIN 14, an interpretation of SFAS No. 5. As the Company has provided adequate reserves, it believes that the ultimate outcome of any matter currently pending against the Company will not materially affect the financial position of the Company.
Results of Operations
Overview
Fiscal 2003 was a challenging year. Our merchandise assortments were not clearly focused on our target customers, resulting in negative comparable store sales. Higher markdowns and increased promotional activity were necessary to clear through the inventory units. This resulted in a lower average unit retail price, which was the primary driver of the decline in comparable store sales.
Consolidated net sales for Fiscal 2003 increased 3.9% to $1.520 billion from $1.463 billion for Fiscal 2002, while our consolidated comparable store sales decreased 6.7% compared to the corresponding period last year.
Gross profit as a percent to sales declined to 36.5% for Fiscal 2003 from 37.1% for the same period last year. The decline in our gross profit margin was primarily due to the deleveraging of rent expense as a result of weak comparable store sales. We were also not able to leverage selling, general and administrative expenses as a result of the negative comp store sales, which increased from 24.0% to 25.0%, as a percent to sales.
During Fiscal 2003, we recognized a $14.1 million goodwill impairment charge due to the continued weak performance of the Bluenotes segment. Reported net income for Fiscal 2003, which includes the goodwill impairment charge, decreased to $60.0 million, or $0.83 per diluted share. Adjusted net income*, which excludes the goodwill impairment charge, decreased to $74.1 million, or $1.03 per diluted share, compared to $88.7 million, or $1.22 per diluted share in the prior year.
Despite a challenging year, we ended Fiscal 2003 with $337.8 million in cash and short-term investments, an increase of $96.2 million from last year. And we continued to make significant investments in our business, including approximately $64.2 million in capital expenditures, which related primarily to our new and remodeled American Eagle stores in the U.S. and Canada.
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In response to disappointing results, we made a number of changes throughout the Company. We upgraded our merchandising and design process, and added new creative talent in key positions. Across operating functions, we focused on improving productivity and strengthened operating disciplines. And importantly, during Fiscal 2003, we interviewed over 3,000 of our customers. This research led to adjustments to our product line. Going forward, our merchandise assortments are planned to be clearly targeted at our 15 to 25 year old customers, with a strong value message and an emphasis on key items.
*A complete definition and discussion of the Company's use of non-GAAP measures, identified by an asterisk (*), is located below.
This table shows, for the periods indicated, the percentage relationship to net sales of the listed items included in the Company's Consolidated Statements of Operations.
|
For the Fiscal Years Ended |
||||||
|
January 31, |
February 1, |
February 2, |
||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of sales, including certain
buying, occupancy and warehousing expenses |
63.5 |
62.9 |
60.1 |
|||
| Gross profit | 36.5 | 37.1 | 39.9 | |||
| Selling, general and administrative expenses | 25.0 | 24.0 | 24.7 | |||
| Depreciation and amortization expense | 3.7 | 3.5 | 3.1 | |||
| Goodwill impairment loss | 0.9 | - | - | |||
| Operating income | 6.9 | 9.6 | 12.1 | |||
| Other income, net | 0.1 | 0.2 | 0.2 | |||
| Income before income taxes | 7.0 | 9.8 | 12.3 | |||
| Provision for income taxes | 3.1 | 3.8 | 4.6 | |||
| Net income | 3.9 | % | 6.0 | % | 7.7 | % |
The Company has two reportable segments, American Eagle and Bluenotes. The American Eagle segment includes the Company's 805 U.S. and Canadian retail stores, the Company's e-commerce business, ae.com, as well as the Company's catalog business. The Bluenotes segment includes the Company's 110 Bluenotes/Thriftys stores in Canada.
Comparison of Fiscal 2003 to Fiscal 2002
Net Sales
Consolidated net sales increased 3.9% to $1.520 billion from $1.463 billion. The sales increase was due to a 10.1% increase in gross square feet, consisting primarily of the addition of 51 net new stores offset by a consolidated comparable store sales decline of 6.7%.
American Eagle net sales increased 3.8% to $1.435 billion from $1.383 billion. The sales increase was due to an 11.1% increase in gross square feet, consisting primarily of the addition of 52 net new stores, offset by a comparable store sales decline of 6.6%. The comparable store sales decrease was driven by a lower average unit retail price as well as a decline in the number of transactions per average store, while the number of units sold per average store increased compared to a year ago. Comparable store sales in the women's business declined in the mid single-digits for the period while the men's comparable store sales decreased in the low double-digits.
Bluenotes net sales increased 5.4% to $84.5 million from $80.2 million due to a stronger Canadian dollar during the period compared to the same period last year. Comparable store sales, which exclude the impact of foreign currency fluctuations, decreased 7.3% due primarily to a lower average unit retail price partially offset by an increase in the number of transactions per average store, the number of units per transaction and the number of units sold per average store.
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A store is included in comparable store sales in the thirteenth month of operation. However, stores that have a gross square footage increase of 25% or greater due to an expansion and/or relocation are removed from the comparable store sales base, but are included in total sales. These stores are returned to the comparable store sales base in the thirteenth month following the expansion and/or relocation.
Gross Profit
Gross profit as a percent to net sales declined to 36.5% from 37.1%. The percentage decrease was attributed to the deleveraging of buying, occupancy and warehousing costs offset by an improvement in merchandise margins. By segment, American Eagle contributed to the decline in gross margin as a percent to sales, while Bluenotes had a positive impact.
Buying, occupancy and warehousing expenses deleveraged due primarily to the deleveraging of rent expense at the American Eagle stores. As a percent to consolidated net sales, Bluenotes buying, occupancy and warehousing expenses remained relatively flat.
Merchandise margins increased for the period due primarily to an improved markon at both segments offset by increased markdowns at American Eagle stores as well as an increase in the liquidation of sell-off merchandise at both American Eagle and Bluenotes. Additionally, a reduction in the American Eagle stores sales returns reserve contributed to the higher merchandise margins.
The Company's gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network as well as design costs in cost of sales and others may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and administrative expenses. See Note 2 of the Consolidated Financial Statements for a description of the Company's accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percent to net sales increased to 25.0% from 24.0% due primarily to the deleveraging of compensation at both the American Eagle and Bluenotes stores. Compensation deleveraged due primarily to the 6.7% decline in comparable store sales. Insurance expense deleveraged at American Eagle and store impairment expense deleveraged at both American Eagle and Bluenotes. These increases were partially offset by the leveraging of communications, advertising and chargecard fees primarily at American Eagle. Overall, American Eagle and Bluenotes both contributed to the deleveraging of selling, general and administrative expenses. Consolidated selling, general and administrative expenses per square foot declined compared to the same period last year and increased slightly per average store.
Depreciation and Amortization Expense
Depreciation and amortization expense as a percent to net sales increased to 3.7% from 3.5% due primarily to our American Eagle stores expansion, including new and remodeled stores.
Goodwill Impairment Loss
Based on the unanticipated and continued weak performance of the Bluenotes division during Fiscal 2003, the Company believed that certain indicators of impairment were present. As a result, the Company performed an interim test of impairment in accordance with SFAS No. 142 during the quarter ended November 1, 2003. The Company completed step one and determined that impairment was likely, which also required the completion of step two. Due to the significant assumptions required for this test, the Company retained an independent third party to perform a step two analysis and to validate Management's assumptions used in step one. Although the third party valuation was still pending as of November 1, 2003, Management believed that a loss was probable and determined its best estimate at that time in accordance with the provisions of SFAS No. 142, as supplemented by SFAS No. 5, Accounting for Contingencies. As a result, the Company recorded an $8.0 million estimated impairment loss during the quarter ended November 1, 2003. During the fourth quarter of Fiscal 2003, the independent third party valuation of the Bluenotes reporting unit was completed. Based upon the step one analysis, it was concluded that the fair market value of the Bluenotes reporting unit was below the book value of the business. The Company completed the step two analysis and allocated the fair value, as determined by the valuation firm, to the existing assets and liabilities and
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determined that the remaining carrying value of the goodwill was impaired. As a result, the Company recorded an additional $6.1 million loss during the fourth quarter of Fiscal 2003. See Note 9 of the Consolidated Financial Statements for further discussion.
Other Income, Net
Other income, net decreased to $2.0 million from $2.5 million due primarily to lower interest income partially offset by lower interest expense.
Net Income
Reported net income decreased to $60.0 million, or 3.9% as a percent to net sales. Adjusted net income*, which excludes the non-cash goodwill impairment charges, decreased to $74.1 million, or 4.9% as a percent to net sales, from $88.7 million, or 6.0% as a percent to net sales. The decline in net income was attributable to the factors noted above.
Diluted income per common share decreased to $0.83. Adjusted diluted income per common share*, which excludes the non-cash goodwill impairment charges, decreased to $1.03 from $1.22. The decline in diluted income per common share was attributable to the factors noted above.
*A complete definition and discussion of the Company's use of non-GAAP measures, identified by an asterisk (*), is located below.
Comparison of Fiscal 2002 to Fiscal 2001
Net Sales
Consolidated net sales increased 6.7% to $1.463 billion from $1.372 billion. The sales increase was due to a 13.1% increase in gross square feet, consisting primarily of the addition of 74 net new stores offset by a consolidated comparable store sales decrease of 5.7%.
American Eagle net sales increased 8.8% to $1.383 billion from $1.271 billion. The sales increase was due to a 14.5% increase in gross square feet, consisting primarily of the net addition of 75 stores offset by a comparable store sales decrease of 4.3%. The comparable store sales decrease was driven primarily by a lower average unit retail price due to increased promotional activity. The units sold per average store and units sold per transaction increased, while the number of transactions per average store declined slightly. Comparable store sales in the men's business declined in Fiscal 2002 while the women's comparable store sales were flat for the year.
Bluenotes net sales decreased 20.3% to $80.2 million from $100.7 million. The sales decline was due primarily to a comparable store sales decrease of 22.3%, which excludes the impact of foreign currency fluctuations. Comparable store sales declined as a result of a lower average unit retail price as well as a decline in units sold per average store.
A store is included in comparable store sales in the thirteenth month of operation. However, stores that have a gross square footage increase of 25% or greater due to an expansion and/or relocation are removed from the comparable store sales base, but are included in total sales. These stores are returned to the comparable store sales base in the thirteenth month following the expansion and/or relocation.
Gross Profit
Gross profit as a percent to sales declined to 37.1% from 39.9%. The percentage decrease was attributed to a lower merchandise margin and the deleveraging of buying, occupancy and warehousing costs. Both American Eagle and Bluenotes contributed to the decline in gross margin as a percent to sales.
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A lower merchandise margin resulted from an increase in markdowns at both American Eagle and Bluenotes, as a percent to sales, partially offset by an improved markon at American Eagle. Additionally, the American Eagle merchandise margin in the second half of the year, primarily the fourth quarter, was negatively impacted by increased airfreight expense stemming from the West Coast dock strike.
Buying, occupancy and warehousing expenses deleveraged due primarily to the deleveraging of rent expense at both American Eagle and Bluenotes.
The Company's gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network as well as design costs in cost of sales and others may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and administrative expenses. See Note 2 of the Consolidated Financial Statements for a description of the Company's accounting policy regarding cost of sales, including certain buying, occupancy and warehousing expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percent to sales decreased to 24.0% from 24.7% as a result of reduced incentive compensation expense as well as cost control measures that were initiated in Fiscal 2002 at American Eagle. These decreases were partially offset by the deleveraging of selling, general and administrative expenses at Bluenotes. For the year, selling, general and administrative expense per gross square foot declined 8.5% and decreased 5.4% per average store. Overall, the Company leveraged total compensation, advertising, services purchased, leasing costs and travel expenses in Fiscal 2002 compared to Fiscal 2001.
Depreciation and Amortization Expense
Depreciation and amortization expense as a percent to sales increased to 3.5% from 3.1% due primarily to our American Eagle stores expansion, including new and remodeled stores.
Other Income, Net
Other income, net decreased to $2.5 million from $2.8 million due primarily to higher interest expense.
Net Income
Net income decreased to $88.7 million, or 6.0% as a percent to net sales, from $105.5 million, or 8.6% as a percent to net sales. The decline in net income was attributable to the factors noted above.
Diluted income per common share decreased to $1.22 from $1.43. The decline in diluted income per common share was attributable to the factors noted above.
Non-GAAP Measure Disclosure
The following definitions are provided for the non-GAAP (Generally Accepted Accounting Principles) measures used by the Company in this Form 10-K. These measures are adjusted net income and adjusted diluted income per common share. Each use is indicated by an asterisk*. We do not intend for these non-GAAP measures to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently.
Adjusted Financial Results
Adjusted net income* and adjusted diluted income per common share* exclude the non-cash goodwill impairment charges of $14.1 million related to our Bluenotes operation. We believe that these adjusted measures provide investors with an important perspective on the current underlying operating performance of our businesses by isolating and excluding the impact of the non-cash impairment charges related to our acquisition of the Bluenotes business in Fiscal 2000.
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The Company defines "adjusted net income" as GAAP net income less non-cash goodwill impairment charges. The table below shows a reconciliation between GAAP net income and adjusted net income*.
The Company defines "adjusted diluted income per common share" as GAAP diluted income per common share less non-cash goodwill impairment charges per share. The table below shows a reconciliation between GAAP diluted income per common share and adjusted diluted income per common share*.
Non-GAAP Financial Measures
Reconciliation of GAAP net income and diluted income per common share to adjusted net income and adjusted diluted income per common share:
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For the Fiscal Years Ended |
||||||
|
January 31, |
February 1, |
February 2, |
||||
| Net income | $60,000 | $88,735 | $105,495 | |||
| Non-cash goodwill impairment charges | 14,118 | - | - | |||
| Adjusted net income* | $74,118 | $88,735 | $105,495 | |||
| Diluted income per common share | $0.83 | $1.22 | $1.43 | |||
| Non-cash goodwill impairment charges per share | 0.20 | - | - | |||
| Adjusted diluted income per common share* | $1.03 | $1.22 | $1.43 | |||
Liquidity and Capital Resources
The Company's uses of cash are primarily for working capital, the construction of new stores and the remodeling of existing stores, information technology upgrades, distribution center improvements and the purchase of both short and long-term investments. Historically, these uses of cash have been met through cash flow from operations.
The following sets forth certain measures of the Company's liquidity:
|
January 31, |
February 1, | |
| Working capital (in 000's) | $336,588 | $285,140 |
| Current ratio | 2.78 | 3.01 |
The Company's major source of cash from operations is merchandise sales. Our primary outflows of cash for operations are for the purchase of inventory, operational costs, and the payment of taxes.
Net cash provided by operating activities of $189.5 million during Fiscal 2003 reflected changes in working capital as well as an increase in non-cash charges, depreciation and amortization, and the goodwill impairment loss offset by lower net income compared to the same period last year. The changes in working capital were primarily due to the timing of income tax payments and a reduction in cash used for inventory purchases.
Investing activities for Fiscal 2003 included $64.2 million for capital expenditures and $63.8 million for the net purchase of investments. Capital expenditures consisted primarily of $49.6 million related to 59 new and 66 remodeled American Eagle stores in the United States and Canada. The remaining capital expenditures related primarily to fixtures and improvements to existing stores and technological improvements. The Company purchased both short and long-term investments during Fiscal 2003. We invest primarily in tax-exempt municipal bonds, taxable agency bonds and corporate notes with an original maturity between three and twenty-four months and an expected rate of return of approximately a 2% taxable equivalent yield. The Company places an emphasis on investing in tax-exempt and tax-advantaged asset classes. Additionally, all investments must have a highly liquid secondary market.
Cash outflows for financing activities of $5.0 million during Fiscal 2003 were primarily used for principle payments on the note payable.
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The Company has an unsecured demand lending arrangement (the "facility") with a bank to provide a $118.6 million line of credit at either the lender's prime lending rate (4.0% at January 31, 2004) or a negotiated rate such as LIBOR. The facility has a limit of $40.0 million to be used for direct borrowing. No borrowings were required against the line for the current or prior periods. At January 31, 2004, letters of credit in the amount of $39.7 million were outstanding on this facility, leaving a remaining available balance on the line of $78.9 million. The Company also has an uncommitted letter of credit facility for $50.0 million with a separate financial institution. At January 31, 2004, letters of credit in the amount of $25.0 million were outstanding on this facility, leaving a remaining available balance on the line of $25.0 million.
The Company has a $29.1 million non-revolving term facility (the "term facility") in connection with its Canadian acquisition. The term facility has an outstanding balance, including foreign currency translation adjustments, of $18.7 million as of January 31, 2004. The facility requires annual payments of $4.8 million and matures in December 2007. The term facility bears interest at the one-month Bankers' Acceptance Rate (2.5% at January 31, 2004) plus 140 basis points.
On November 30, 2000, the Company entered into an interest rate swap agreement totaling $29.2 million in connection with the term facility. The swap amount decreases on a monthly basis beginning January 1, 2001 until the termination of the agreement in December 2007. The Company utilizes the interest rate swap to manage interest rate risk. The Company pays a fixed rate of 5.97% and receives a variable rate based on the one-month Bankers' Acceptance Rate. This agreement effectively changes the interest rate on the borrowings under the term facility from a variable rate to a fixed rate of 5.97% plus 140 basis points.
The Company also had an $11.2 million revolving operating facility (the "operating facility") that was used to support the working capital and capital expenditures of the acquired Canadian businesses. The operating facility was due in November 2003 and had four additional one-year extensions. The Company has chosen not to extend the operating facility for another year. During Fiscal 2002, the Company borrowed and subsequently repaid $4.8 million under the operating facility. There were no borrowings under the operating facility for the years ended January 31, 2004 or February 2, 2002.
On February 24, 2000, the Company's Board of Directors authorized the repurchase of up to 3,750,000 shares of its stock. As part of this stock repurchase program, the Company purchased 40,000, 1,140,000 and 63,800 shares of common stock for approximately $0.6 million, $17.8 million and $1.1 million on the open market during Fiscal 2003, Fiscal 2002 and Fiscal 2001, respectively. As of January 31, 2004, approximately 700,000 shares remain authorized for repurchase. Additionally, during Fiscal 2003, Fiscal 2002 and Fiscal 2001, the Company purchased 8,000 shares, 58,000 shares and 44,000 shares, respectively, from certain employees at market prices totaling $0.1 million, $1.6 million and $1.4 million, respectively, for the payment of taxes in connection with the vesting of restricted stock as permitted under the 1999 Stock Incentive Plan. These repurchases have been recorded as treasury stock.
We have never declared or paid cash dividends and presently all of our earnings are being retained for the development of our business and the share repurchase program (see Note 2 of the Consolidated Financial Statements). We assess our dividend policy from time to time. The payment of any future dividends will be at the discretion of our Board of Directors and will be based on future earnings, financial condition, capital requirements, changes in U.S. taxation and other relevant factors.
We expect capital expenditures for Fiscal 2004 to be approximately $85 to $90 million, which will relate primarily to approximately 50 new American Eagle stores in the United States and Canada, and the remodeling of approximately 50 American Eagle stores in the United States. Remaining capital expenditures will relate to new fixtures and enhancements to existing stores, an investment relating to our corporate headquarters, information technology upgrades and distribution center improvements. Additionally, in Fiscal 2004, we plan to pay $4.8 million in scheduled principal payments on the term facility. We plan to fund these capital expenditures and debt repayments primarily through existing cash and cash generated from operations. These forward-looking statements will be influenced by our financial position, consumer spending, availability of financing, and the number of acceptable leases that may become available.
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Our growth strategy includes the possibility of acquisitions and/or internally developing new brands. We periodically consider and evaluate these options to support future growth. In the event we do pursue such options, we could require additional equity or debt financing. There can be no assurance that we would be successful in closing any potential transaction, or that any endeavor we undertake would increase our profitability.
Disclosure about Contractual Obligations
The following table summarizes significant contractual obligations of the Company as of January 31, 2004:
|
Payments Due by Period |
||||||
| (In thousands) |
|
Less than |
2-3 |
4-5 |
After |
|
| Note Payable | $18,706 | $4,832 | $9,664 | $4,210 | $ - | |
| Purchase Obligations | 69,551 | 69,551 | - | - | - | |
| Operating Leases | 1,087,344 | 139,455 | 270,756 | 256,080 | 421,053 | |
| Total Contractual Obligations | $1,175,601 | $213,838 | $280,420 | $260,290 | $421,053 | |
In addition to the above purc